Tag Archives: Circle of Competence

Circle of Competence


What is common among Sachin, Pele, Schumacher, Tiger Woods, Mike Tyson, Navrathilova?
Sachin only into cricket, Pele only into soccer, Schumacher only into F1 racing, Tiger Woods only into Golf, Mike Tyson only into Boxing, Navrathilova only into Tennis

What is common among Maruti, Hero Motocorp, Pidilite, Asian Paints, TCS, Page, Castrol?
Maruti makes only Four wheeler passenger vehicles, Hero Motocorp makes only two wheelers, Pidilite is only into adhesives and specialty chemicals, Asian Paints only into paints and varnishes, TCS only into software, Page only into inner, sports and leisure wear, Castrol only into automotive lubricants

The keyword above is ‘only‘ and that’s what made all of them exceptional, and that means they have all stuck to what they know and what they are good at – core competence – with a lot of passion

And we all know very well how much shareholder returns these companies have created.

That’s what Warren Buffett and Charlie Munger called sticking to your circle of competence.

“Know your circle of competence, and stick within it. The size of that circle is not very important; knowing its boundaries, however, is vital.” – Warren Buffett

“We have to deal in things that we are capable of understanding.” – Charlie Munger

Staying within one’s circle of competence is very important in investing and that is the first level of Margin of Safety

Thanks,

 

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